Ask The Experts

Question: What are different types of income that can fund nonprofit organizations?

Answer: In the for-profit business world, an organization does or gives services in exchange for money, earning revenue. In the nonprofit world, contributions are also received, referred to as “donations” or “gifts.” Donors give often money because they want to help carry out an organization’s mission. Nonprofits don’t need to give them anything in exchange, so they recognize revenue when a donor says they are going to give money, even if this money is not received. Such contributions or donations are allowed as a tax-deduction on the donors’ federal income tax return when the funds are transferred to or for the benefit of the non-profit.

Contributions can give rise to restricted revenue. Contributions can come from governments, foundations, individuals, or any other donor. Contributions can be either in the form of cash or other monetary assets, such as stock or non-cash gifts. An issue with revenue recognition is whether the non-profit gave something of value in exchange. One transaction can be part contribution, part exchange, like a 100 dollar ticket for a dinner where the value of the dinner is 40 dollars. The 40 dollars is exchange and the 60 dollars is a contribution. The portion of the gift representing the value of benefits received by the donor is not tax-deductible.

grant is a contribution or donation from certain types of donors. The term "grant" is relevant to the accounting or tax requirements of party who provided the funds and, not a separate type of revenue for accounting of a non-profit organization. A grant can provide funds for a specific project, or for work of the core mission of the non-profit. They can be have a component of being partly a contributions or partly an exchange, if something of value was given back in exchange. Value can be in the form of reports on outcomes.

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